Note CNY'million CNY'million Revenue 2 203, ,548 Cost of sales 127, ,195 Gross profit 76,448 80,353

Transcription

1 Consolidated Financial Statements Summary and Notes / 32 Consolidated Income Statement Note CNY'million CNY'million Revenue 2 203, ,548 Cost of sales 127, ,195 Gross profit 76,448 80,353 Research and development expenses 23,696 17,653 Selling, general and administrative expenses 33,770 31,439 Other operating expenses, net Operating profit before financing costs 18,582 30,676 Net finance expenses 4 5,897 2,118 Share of losses of associates / jointly controlled entities Profit before income tax 12,457 28,548 Income tax ,832 Profit for the year 11,647 24,716 Attributable to: Equity holders of the Company 11,736 24,714 Non-controlling interests (89) 2 Profit for the year 11,647 24,716

2 33 / Consolidated Financial Statements Summary and Notes Consolidated Balance Sheet Note CNY'million CNY'million Assets Property, plant and equipment 7 18,631 16,008 Intangible assets and goodwill 8 1, Trade and other receivables Investments in associates and jointly controlled entities Available-for-sale equity investments Loans receivable Deferred tax assets 11 9,095 7,210 Other non-current assets 3,381 2,329 Non-current assets 33,668 26,976 Inventories 13 25,873 27,568 Trade and other receivables 14 70,832 68,734 Financial assets held for trading 12 5,150 13,957 Loans receivable Cash and cash equivalents 15 57,192 41,501 Current assets 159, ,008 Total assets 193, ,984 Equity Equity attributable to equity holders of the Company 66,274 69,381 Non-controlling interests (46) 19 Total equity 66,228 69,400 Liabilities Borrowings 16 13,270 10,264 Defined benefit post-employment obligations 8,392 6,266 Deferred government grants 1,857 1,354 Deferred tax liabilities Non-current liabilities 24,121 18,474 Borrowings 16 7,057 2,695 Income tax payable 2,323 4,203 Trade and other payables 17 91,592 82,656 Provisions for warranties 19 1,962 1,556 Current liabilities 102,934 91,110 Total liabilities 127, ,584 Total equity and liabilities 193, ,984

3 Consolidated Financial Statements Summary and Notes / 34 Consolidated Statement of Cash Flow Note CNY'million CNY'million Cash flows from operating activities Cash receipts from customers 253, ,865 Cash paid to suppliers and employees (233,092) (194,205) Other operating cash flows (2,929) (3,105) Net cash from operating activities 17,826 31,555 Net cash generated from / (used in) investing activities 3,421 (14,708) Net cash used in financing activities (4,774) (10,152) Net increase in cash and cash equivalents 16,473 6,695 Cash and cash equivalents at January ,501 35,213 Effect of foreign exchange rate changes (782) (407) Cash and cash equivalents at December ,192 41,501

4 35 / Consolidated Financial Statements Summary and Notes Notes to the Consolidated Financial Statements Summary 1. Basis of preparation of consolidated financial statements summary and significant accounting policies of the Group (a) Basis of preparation Huawei Investment & Holding Co., Ltd. (formerly "Shenzhen Huawei Investment & Holding Co., Ltd.", the Company ) and its subsidiaries (the Group ) have prepared a full set of consolidated financial statements ( consolidated financial statements ) for the year ended December 31, 2011 in accordance with International Financial Reporting Standards ( IFRSs ), which collective term includes all applicable individual IFRSs, International Accounting Standards and Interpretations issued by the International Accounting Standards Board. This consolidated financial statements summary has been prepared and presented based on the audited consolidated financial statements for the year ended December 31, 2011 by means of disclosing operational and financial information of material nature. The intended users of the consolidated financial statements summary can obtain access to the audited consolidated financial statements for the year ended December 31, 2011 upon consent of the Group s Management through the address, information@huawei.com. (b) Functional and presentation currency All financial information in the consolidated financial statements summary is presented in Chinese Yuan, which is the Company s functional currency. All financial information presented in Chinese Yuan has been rounded to the nearest million. (c) Translation of foreign currencies i) Foreign currency transactions Transactions in foreign currency during the year are translated to the respective functional currencies of group entities at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the foreign exchange rates at that date. Exchange gains and losses are recognised in profit or loss. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates ruling at the transaction dates. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated using the foreign exchange rates ruling at the dates the fair value was determined. ii) Foreign operations The results of foreign operations, except for foreign operations in hyperinflationary economies, are translated into Chinese Yuan at the exchange rates approximating the foreign exchange rates ruling at the dates of the transactions. Balance sheet items are translated into Chinese Yuan at the closing foreign exchange rates at the balance sheet date. The resulting exchange differences are recognised in other comprehensive income and accumulated separately in equity in the exchange reserve. However, if the operation is a non-wholly-owned subsidiary, then the relevant proportionate share of the translation difference is allocated to the non-controlling interest. The results of foreign operations in hyperinflationary economies are translated to Chinese Yuan at the exchange rate ruling at the balance sheet date. Prior to translating the financial statements of foreign operations in hyperinflationary economies, their financial statements for the current year are restated to account for changes in the general purchasing power of the local currency. The restatement is based on relevant price indices at the balance sheet date. When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant

5 Consolidated Financial Statements Summary and Notes / 36 proportion of the cumulative amount is reattributed to non-controlling interests. When the Group disposes of only part of its investment in an associate or joint venture that includes a foreign operation while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss. (d) Business combinations Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable. The Group measures goodwill at the acquisition date as: the fair value of the consideration transferred; plus the recognised amount of any non-controlling interests in the acquiree; plus if the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquiree; less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. The consideration transferred does not include amounts related to the settlement of preexisting relationships. Such amounts generally are recognised in profit or loss. Transactions costs, such as finder s fee, legal fees, due diligence fees, and other professional and consulting fees, that the Group incurs in connection with a business combination are expensed as incurred. Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognised in profit or loss. (e) Subsidiaries and non-controlling interests Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group balances and transactions and any unrealised profits arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment. Non-controlling interests represent the equity in a subsidiary not attributable directly or indirectly to the Company, and in respect of which the Group has not agreed any additional terms with the holders of those interests which would result in the Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. For each business combination, the Group can elect to measure any non-controlling interests either at fair value or at their proportionate share of the subsidiary s net identifiable assets. Non-controlling interests are presented in the consolidated balance sheet within equity, separately from equity attributable to the equity holders of the Company. Non-controlling interests in the results of the Group are presented on the face of the consolidated income statement and the consolidated statement of comprehensive income as an allocation of the total profit or loss and total comprehensive income for the year between non-controlling interests and the equity holders of the Company. Changes in the Group s interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions, whereby adjustments are made to the amounts of controlling and non-

6 37 / Consolidated Financial Statements Summary and Notes controlling interests within consolidated equity to reflect the change in relative interests, but no adjustments are made to goodwill and no gain or loss is recognised. When the Group loses control of a subsidiary, it is accounted for as a disposal of the entire interest in that subsidiary, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former subsidiary at the date when control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset or, when appropriate, the cost on initial recognition of an investment in an associate or jointly controlled entity (see note 1(f)). (f) Associates and jointly controlled entities An associate is an entity in which the Group has significant influence, but not control or joint control, over its management, including participation in the financial and operating policy decisions. A jointly controlled entity is an entity which operates under a contractual arrangement between the Group and other parties, where the contractual arrangement establishes that the Group and one or more of the other parties share joint control over the economic activity of the entity. An investment in an associate or a jointly controlled entity is accounted for in the consolidated financial statements under the equity method. Under the equity method, the investment is initially recorded at cost, adjusted for any excess of the Group s share of the acquisition-date fair values of the investee s identifiable net assets over the cost of the investment (if any). Thereafter, the investment is adjusted for the post acquisition change in the Group s share of the investee s net assets and any impairment loss relating to the investment (see note 1(k)). Any acquisition-date excess over cost, the Group s share of the post-acquisition, post-tax results of the investees and any impairment losses for the year are recognised in the consolidated income statement, whereas the Group s share of the post-acquisition post-tax items of the investees other comprehensive income is recognised in the consolidated statement of comprehensive income. When the Group s share of losses exceeds its interest in the associate or the jointly controlled entity, the Group s interest is reduced to Nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the investee. For this purpose, the Group s interest is the carrying amount of the investment under the equity method together with the Group s long-term interests that in substance form part of the Group s net investment in the associate or the jointly controlled entity. Unrealised profits and losses resulting from transactions between the Group and its associates and jointly controlled entities are eliminated to the extent of the Group s interest in the investee, except where unrealised losses provide evidence of an impairment of the asset transferred, in which case they are recognised immediately in profit or loss. When the Group ceases to have significant influence over an associate or joint control over a jointly controlled entity, it is accounted for as a disposal of the entire interest in that investee, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former investee at the date when significant influence or joint control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset or, when appropriate, the cost on initial recognition of an investment in an associate. (g) Investment properties Investment properties are buildings which are owned to earn rental income and /or for capital appreciation. Investment properties are stated in the consolidated balance sheet at cost less depreciation and impairment losses (see note 1(k)). Rental income from investment properties is accounted for as described in note 1(u)(iv). Depreciation is calculated to write off the cost of buildings, less their estimated residual value (5%), using the straight line method over their estimated useful life of 20 years.

7 Consolidated Financial Statements Summary and Notes / 38 (h) Other property, plant and equipment i) Recognition and measurement Items of property, plant and equipment are measured in the consolidated balance sheet at cost less accumulated depreciation (see below) and impairment losses (see note 1(k)). Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed items of property, plant and equipment includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and an appropriate proportion of production overheads and borrowing costs (see note 1(v)). Where parts of an item of property, plant and equipment have different useful lives, the cost is allocated on a reasonable basis between the parts and each part is depreciated separately. Gains or losses arising from the retirement or disposal of an item of property, plant and equipment, are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in profit or loss on the date of retirement or disposal. Construction in progress is transferred to other property, plant and equipment when it is ready for its intended use. No depreciation is provided against construction in progress. ii) Subsequent costs The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is de-recognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. iii) Depreciation Depreciation is calculated to write off the cost of items of property, plant and equipment, less their estimated residual value, if any, using the straight line method over their estimated useful lives as follows: Freehold land is not depreciated Estimated useful lives Estimated rate of residual value Buildings 20 years 5% Machinery, electronic equipment and other equipment 3 ~ 10 years 5% Motor vehicles 5 years 5% Decoration and leasehold improvements 2 ~ 5 years Nil Both the useful life of an item of property, plant and equipment and its residual value, if any, are reviewed annually. (i) Intangible assets i) Goodwill Goodwill that arises on the acquisition of subsidiaries is presented with intangible assets. For the measurement of goodwill at initial recognition, see note 1(d). Goodwill is subsequently measured at cost less accumulated impairment losses (see note 1(k)). In respect of equity-accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment, and any impairment loss is allocated to the carrying amount of the equity-accounted investee as a whole. ii) Research and development Research and development costs comprise all costs that are directly attributable to research and development activities or that can be allocated on a reasonable basis to such activities. Because of the nature of the Group s research and development activities, the criteria for the recognition of such costs as assets are generally not met until late in the development stage of the project when the remaining development costs are immaterial. Hence both research costs and development costs are generally recognised as expenses in profit or loss in the period in which they are incurred. iii) Other intangible assets Other intangible assets that are acquired by the

8 39 / Consolidated Financial Statements Summary and Notes Group are stated in the consolidated balance sheet at cost less accumulated amortisation (where the estimated useful life is finite) and impairment losses (see note 1(k)). iv) Amortisation Amortisation of intangible assets with finite useful lives is charged to profit or loss on a straight-line basis over the asssets estimated useful lives. The following intangible assets with finite useful lives are amosrtised from the date they are available for use and their estimated useful lives are as follows: Software 3 years Patents 3 to 22 years Trademark 10 years Both the period and method of amortisation are reviewed annually. Intangible assets are not amortised while their useful lives are assessed to be indefinite. Any conclusion that the useful life of an intangible asset is indefinite is reviewed annually to determine whether events and circumstances continue to support the indefinite useful life assessment for that asset. If they do not, the change in the useful life assessment from indefinite to finite is accounted for prospectively from the date of change and in accordance with the policy for amortisation of intangible assets with finite lives as set out above. The group has no intangible assets with indefinite useful life. (j) Leased assets An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease. i) Classification of assets leased to the Group Assets that are held by the Group under leases which transfer to the Group substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the Group are classified as operating leases. ii) Operating lease charges Where the Group has the use of assets held under operating leases, payments made under the leases are charged to profit or loss in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognised in profit or loss as an integral part of the aggregate net lease payments made. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred. (k) Impairment of assets i) Impairment of investments in debt and equity securities and others receivables Investments in debt and equity securities and other current and non-current receivables that are stated at cost or amortised cost or are classified as available-for-sale securities are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. Objective evidence of impairment includes observable data that comes to the attention of the Group about one or more of the following loss events: significant financial difficulty of the debtor; a breach of contract, such as a default or delinquency in interest or principal payments; it becoming probable that the debtor will enter bankruptcy or other financial reorganisation; significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; and a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost. If any such evidence exists, any impairment loss is determined and recognised as follows: For investments in associates and jointly controlled entities recognised using the equity method (see note 1(f)), the impairment loss is measured by comparing the recoverable

9 Consolidated Financial Statements Summary and Notes / 40 amount of the investment as a whole with its carrying amount in accordance with note 1(k) (ii). The impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount in accordance with note 1(k)(ii). For unquoted equity securities carried at cost, the impairment loss is measured as the difference between the carrying amount of the financial asset and present value of estimated future cash flows, discounted at the current market rate of return for a similar financial asset where the effect of discounting is material. Impairment losses for equity securities are not reversed. For trade and other current receivables and other financial assets carried at amortised cost, the impairment loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the financial asset s original effective interest rate (i.e. the effective interest rate computed at initial recognition of these assets), where the effect of discounting is material. This assessment is made collectively where financial assets carried at amortised cost share similar risk characteristics, such as similar past due status, and have not been individually assessed as impaired. Future cash flows for financial assets which are assessed for impairment collectively are based on historical loss experience for assets with credit risk characteristics similar to the collective group. If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognised, the impairment loss is reversed through profit or loss. A reversal of an impairment loss shall not result in the asset s carrying amount exceeding that which would have been determined had no impairment loss been recognised in prior years. Impairment losses are written off against the corresponding assets directly, except for impairment losses recognised in respect of trade debtors and bills receivable included within trade and other receivables, whose recovery is considered doubtful but not remote. In this case, the impairment losses for doubtful debts are recorded using an allowance account. When the Group is satisfied that recovery is remote, the amount considered irrecoverable is written off against trade debtors and bills receivable directly and any amounts held in the allowance account relating to that debt are reversed. Subsequent recoveries of amounts previously charged to the allowance account are reversed against the allowance account. Other changes in the allowance account and subsequent recoveries of amounts previously written off directly are recognised in profit or loss. ii) Impairment of other assets Internal and external sources of information are reviewed at each balance sheet date to identify indications that the following assets may be impaired or an impairment loss previously recognised no longer exists or may have decreased: property, plant and equipment; long term leasehold prepayments; other long term deferred assets; and intangible assets and goodwill If any such indication exists, the asset s recoverable amount is estimated. In addition, for intangible assets that are not yet available for use, goodwill and intangible assets that have indefinite useful lives, the recoverable amount is estimated annually whether or not there is any indication of impairment. Calculation of recoverable amount The recoverable amount of an asset is the greater of its fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).goodwill acquired in a business combination is allocated to groups of cash generating units that are expected to benefit from the synergies of the combination. Recognition of impairment loss An impairment loss is recognised in profit

10 41 / Consolidated Financial Statements Summary and Notes or loss if the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cashgenerating unit (or group of units) and then, to reduce the carrying amount of the other assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs to sell, or value in use, if determinable. Reversals of impairment losses An impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed. For other assets, a reversal of an impairment loss is limited to the asset s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognised. (l) Inventories Inventories are carried at the lower of cost and net realisable value. Cost is calculated using the standard cost method with periodical adjustments of cost variance to arrive at the actual cost, which approximates actual cost on a first-in first-out basis. The cost of inventories includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the writedown or loss occurs. The amount of any reversal of any write-down of inventories is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs. (m) Construction contracts Construction contracts are contracts specifically negotiated with a customer for the construction of an asset or a group of assets, where the customer is able to specify the major structural elements of the design. The accounting policy for contract revenue is set out in note 1(u)(ii). When the outcome of a construction contract can be estimated reliably, contract costs are recognised as an expense by reference to the stage of completion of the contract at the balance sheet date. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. When the outcome of a construction contract cannot be estimated reliably, contract costs are recognised as an expense in the period in which they are incurred. Construction contracts in progress at the balance sheet date are recorded in the consolidated balance sheet at the net amount of costs incurred plus recognised profit less recognised losses and progress billings, and are presented in the consolidated balance sheet as the Gross amount due from customers for contract work (as an asset) or the Gross amount due to customers for contract work (as a liability), as applicable. Progress billings not yet paid by the customer are included in the consolidated balance sheet under Trade and other receivables. Amounts received before the related work is performed are included in the consolidated balance sheet, as a liability, as Trade and other payables. (n) Trade and other receivables Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost less impairment losses for bad and doubtful debts (see note 1(k)), except where the receivables are interest-free loans made to related parties

11 Consolidated Financial Statements Summary and Notes / 42 without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less impairment losses for bad and doubtful debts. (o) Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between the amount initially recognised and redemption value being recognised in the consolidated income statement over the period of the borrowings, together with any interest and fees payable, using the effective interest method. (p) Trade and other payables Trade and other payables are initially recognised at fair value and thereafter stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost. (q) Cash and cash equivalents Cash and cash equivalents comprise cash at bank and on hand and call deposits with banks. Bank overdrafts that are repayable on demand and form an integral part of the Group s cash management are also included as a component of cash and cash equivalents for the purpose of the consolidated cash flow statement. (r) Employee benefits i) Short term employee benefits and contributions to defined contribution retirement plans Salaries, annual bonuses, paid annual leave and contributions to defined contribution retirement plans are accrued in the year in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values. ii) Defined benefit plan obligations The Group s net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine the present value and the fair value of any plan assets is deducted. The discount rate is the yield at the balance sheet date on high quality corporate bonds that have maturity dates approximating the terms of the Group s obligations. The calculation is performed by management using the projected unit credit method. When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognised as an expense in profit or loss on a straight line basis over the average period until the benefits become vested. If the benefits vest immediately, the expense is recognised immediately in profit or loss. In calculating the Group s obligation in respect of a plan, any actuarial gain or loss is recognised in profit or loss immediately. (s) Provisions and contingent liabilities i) Provision for product warranties The Group provides warranty on its products for a period typically covers 12 to 24 months. The warranty generally includes parts, labour and service centre support. The Group estimates the costs that may be incurred under its warranty obligations and records a liability in the amount of such costs at the time revenue is recognised. Factors that affect the Group s warranty liability include the number of installed units, historical and anticipated rates of warranty claims. The Group periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. ii) Other provisions and contingent liabilities Provisions are recognised for other liabilities of uncertain timing or amount when the Group has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation. Where it is not probable that an outflow of economic

12 43 / Consolidated Financial Statements Summary and Notes benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote. (t) Income tax Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognised in profit or loss except to the extent that they relate to a business combination or items recognised in other comprehensive income or directly in equity, in which case the relevant amounts of tax are recognised in other comprehensive income or directly in equity, respectively. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits. All deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised. The amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities are not discounted. The carrying amount of a deferred tax asset is reviewed at each balance sheet date and is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow the related tax benefit to be utilised. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available. Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities, if the Group has the legally enforceable right to set off current tax assets against current tax liabilities and the following additional conditions are met: in the case of current tax assets and liabilities, the Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously; or in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either: the same taxable entity; or different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realise the current tax assets and settle the current tax liabilities on a net basis or realise and settle simultaneously.

13 Consolidated Financial Statements Summary and Notes / 44 (u) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in profit or loss as follows: i) Sale of goods and services rendered Revenue from sales of goods is recognised when the significant risks and rewards of ownership of goods have been transferred to the buyer. Revenue from provision of services is recognised at the time when the services are provided. No revenue is recognised if there are significant uncertainties regarding the recovery of the consideration due, associated costs or the possible return of goods. Revenue excludes value added tax or other sales taxes and is after deduction of any trade discounts. ii) Contract revenue When the outcome of a construction contract can be estimated reliably, revenue from a fixed price contract is recognised using the percentage of completion method, measured by reference to the percentage of contract costs incurred to date to estimated total contract costs for the contract. When the outcome of a construction contract cannot be estimated reliably, revenue is recognised only to the extent of contract costs incurred that it is probable will be recoverable. iii) Government grants Government grants are recognised in the consolidated balance sheet initially when there is reasonable assurance that they will be received and that the Group will comply with the conditions attaching to them. Grants that compensate the Group for expenses incurred are recognised as revenue in profit or loss on a systematic basis in the same periods in which the expenses are incurred. Grants that compensate the Group for the cost of an asset are recognised as deferred income and consequently are effectively recognised in profit or loss on a systematic basis over the useful life of the asset. iv) Rental income from operating leases Rental income receivable under operating leases is recognised in profit or loss in equal instalments over the periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the use of the leased asset. Lease incentives granted are recognised in profit or loss as an integral part of the aggregate net lease payments receivable. Contingent rentals are recognised as income in the accounting period in which they are earned. (v) Finance income and expenses Finance income comprises dividend and interest income on funds invested (including availablefor-sale financial assets), gains on the disposal of available-for-sale financial assets, and changes in the fair value of financial assets held for trading. Interest income is recognised as it accrues using the effective interest method. Dividend income from unlisted investments is recognised when the equity holder s right to receive payment is established; dividend income from listed investments is recognised when the share price of the investment goes ex-dividend. Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions and impairment losses recognised on financial assets. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset which necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset. Other borrowing costs are expensed in the period in which they are incurred. The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or complete. Foreign currency gains and losses are reported on a net basis.

14 45 / Consolidated Financial Statements Summary and Notes (w) Factoring without recourse Factoring without recourse constitutes transfer of trade receivables. The Group transfers its trade receivables to banks or financial institutes; the bank or the financial institute fully bears the collection risk without the right to receive payments from the Group in the event a loss occurs due to the non-collectibility of the receivables transferred. The Group s customers make payments of the receivables transferred directly to the bank or the financial institute. In a factoring without recourse, trade receivables transferred are derecognised from the consolidated balance sheet. Excess of carrying amount of trade receivables over cash received from the banks or financial institutes arising from factoring without recourse is included in the Other operating expenses of the consolidated income statement. 2. Revenue Sales of goods and services 203, ,368 Rental income , , Personnel expenses Expenses recognised in respect of defined benefit plan 2,426 2,994 Contributions to defined contribution plans 4,322 2,848 Total post-employment plan cost 6,748 5,842 Salaries, wages and other benefits 32,619 25,512 39,367 31,354

15 Consolidated Financial Statements Summary and Notes / Net finance expenses Interest income (376) (514) Dividend income - (2) Net realised and unrealised gains on financial assets held for trading (391) (121) Net gain on disposal of available-for-sale equity investments (4) - Finance income (771) (637) Interest expense 1,398 1,035 Net foreign exchange loss 4,876 1,367 Impairment of available-for-sale securities 1 21 Bank charges Finance expenses 6,668 2,755 Net finance expenses 5,897 2,118

16 47 / Consolidated Financial Statements Summary and Notes 5. Income tax in the consolidated income statement Taxation in the consolidated income statement represents: Current tax PRC enterprise income tax - current year 1,984 4,142 - (over) / under-provision in respect of prior years (522) 117 Overseas tax - current year 1,490 1,630 -over-provision in respect of prior years (113) (76) 2,839 5,813 Deferred tax Origination and reversal of temporary differences (2,029) (1,981) 810 3,832

17 Consolidated Financial Statements Summary and Notes / Segment reporting The Group has two reportable geographical segments, which are China and Overseas. The Group divides its business into three operating segments in accordance with the types of products and services provided: Carrier Network Develops and manufactures a wide range of wireless networks, fixed networks, telecom software & core networks, as well as services solutions to telecommunications operators. Enterprise Business Develops integratable information and communications technology ("ICT") products and solutions including enterprise network infrastructure, cloud-based green data centers, enterprise information security and unified communication & collaboration, and delivers these solutions to vertical industries such as governments, public utilities, enterprises, energy, power, transportation and finance. Consumer Business Develops and manufactures mobile broadband devices, home devices, smartphones, as well as the applications on these devices, and delivers them to consumers and businesses. Revenue information in respect of geographical segments China 65,565 62,143 Overseas 138, ,405 Total 203, ,548 Revenue information in respect of business segments Carrier Network 150, ,800 Enterprise Business 9,164 5,834 Consumer Business 44,620 30,914 Total 203, ,548 Both the geographical and business segments are determined based on the Group's organization structure, management requirement and reporting system. Each reportable segment is managed separately because each requires different technology and marketing strategies. The financial information of the different segments is regularly reviewed by the Group's management to make decisions about resources to be allocated to the segment and assess its performance.

18 49 / Consolidated Financial Statements Summary and Notes 7. Property, plant and equipment Cost: Land and Buildings Machinery, electronic equipment and other equipment Construction Motor in vehicles progress Investment properties Decoration and leasehold improvements Total CNY'million CNY'million CNY'million CNY'million CNY'million CNY'million CNY'million At January 1, ,468 11, , ,460 24,668 Exchange adjustment (8) (113) (21) (4) - (13) (159) Additions 50 2, , ,924 Transfer from construction in progress 1,918 1,206 - (4,548) - 1,424 - Disposals (2) (1,491) (49) - - (28) (1,570) At December 31, ,426 12, , ,056 27,863 At January 1, ,426 12, , ,056 27,863 Exchange adjustment (26) (257) (18) (18) - (42) (361) Additions 7 2, , ,796 Transfer from construction in progress (46) Disposals - (767) (44) - - (26) (837) At December 31, ,407 14, , ,273 32,461 Depreciation: At January 1, ,171 6, ,959 10,500 Exchange adjustment (1) (44) (10) - - (4) (59) Depreciation charge for the year 318 1, ,462 Disposals - (985) (40) - - (23) (1,048) At December 31, ,488 7, ,331 11,855 At January 1, ,488 7, ,331 11,855 Exchange adjustment (1) (133) (11) - - (28) (173) Depreciation charge for the year 358 1, ,713 Disposals - (511) (39) - - (15) (565) At December 31, ,845 8, ,811 13,830 Carrying amounts: At December 31, ,938 5, , ,725 16,008 At December 31, ,562 5, , ,462 18,631

19 Consolidated Financial Statements Summary and Notes / 50 Investment properties The Group is engaged in the manufacturing, sales and marketing of telecommunications equipment and the provision of related services. The Group leased certain buildings to an ex-subsidiary, an ex-associate and other third parties. Such buildings are classified as investment properties. The carrying value of investment properties as of 31 December 2011 is CNY278,153,000 (2010: CNY306,931,000). The fair value of investment properties as of 31 December 2011 is estimated by the directors to be CNY478,684,000 (2010: CNY493,913,000). The fair value is calculated by management based on the discounted cash flow analysis. The fair value of investment property is determined by the Group internally by reference to market conditions and discounted cash flow forecasts. The Group's current lease agreements, which were entered into on an arm's-length basis, were taken into account. 8. Intangible assets and goodwill Goodwill Software Patents Trademark Total CNY'million CNY'million CNY'million CNY'million CNY'million Cost: At January 1, ,338 Additions Disposals - (4) (1) - (5) At December 31, ,758 At January 1, ,758 Additions Disposals - (14) - - (14) At December 31, , ,677 Amortisation and impairment loss: At January 1, Amortisation of the year Disposals - (4) - - (4) At December 31, ,039 At January 1, ,039 Amortisation of the year Disposals - (11) - - (11) At December 31, ,299 Carrying amounts: At December 31, At December 31, ,378